UNIVERSITI PUTRA MALAYSIA

IMPLEMENTATION OF ACT 171 OF 1976 ON PROPERTY ASSESSMENT FOR RATING SYSTEMS IN PENINSULAR MALAYSIA

HABIBU SANI MUHAMMAD

FPAS 2014 11

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IMPLEMENTATION OF ACT 171 OF 1976 ON PROPERTY ASSESSMENT

FOR RATING SYSTEMS IN PENINSULAR MALAYSIA

By

HABIBU SANI MUHAMMAD

Thesis Submitted to School Of Graduate Studies, Universiti Putra Malaysia,

in Fulfilment of the Requirements for the Degree of Doctor of Philosophy

August 2014

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COPYRIGHT

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Abstract of thesis presented to the Senate of Universiti Putra Malaysia in fulfillment

of the requirement for the degree of Doctor of Philosophy

IMPLEMENTATION OF ACT 171 OF 1976 ON PROPERTY ASSESSMENT

FOR RATING SYSTEMS IN PENINSULAR MALAYSIA

By

HABIBU SANI MUHAMMAD

August 2014

Chairperson: Mohd Bakri Ibn Ishak, PhD

Faculty: Environmental Studies

Property rating is a tax levy on landed properties adjudged rateable by rating

authority (Local authorities) in order to raise revenue for providing certain public

services and infrastructures as waste collection and disposal, drainage and street

cleaning, neighbourhood parks, landscaping and neighbourhood fumigation. Act

171 of 1976 empowers all local authorities in Malaysia to levy property rates based

on assessed value of properties (annual or improved value approach) vide sections

127, 129 and 130 respectively. Concurrent application of seemingly unequal

approaches triggered a question on possibilities of achieving uniformity as required

by the Act. The study was conceptualized to unveil emerging facts from

implementation of Act 171 of 1976 on property assessment for rating purpose in

peninsular Malaysia with particular reference to achieving uniformity. It was guided

by a general research objective: To analyze specific content of the Act affecting

property rating and application of international valuation standards in valuation of

properties for rating purpose. While the specific objectives include: 1) To compare

property classification/rate percentage charges among local authorities 2) To

compare rate liabilities between local authorities on annual and improved value

approach 3) To identify common reasons advanced in objection hearing sessions by

rate payers as well as the processes involved in handling objections by local

authorities. The research was conducted on qualitative case study design with

interview as the main technique while document analysis, notes and observations

were used for triangulation. Eight local authorities of city council status were

chosen while respondents/participants were selected from among valuation officers

of each local authorities at the inception based on which pilot study was conducted

answer the questions thus restructured to only chief valuation officers who well

experienced, vast with requisite authority to release documents needed to for

triangulation.

Findings revealed that, Act 171 of 1976 is wholly applied on issues concerning

property rating assessment by the local authorities with divergent practices. They

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occur are as a result of conflicting provisions in the Act. Misapplication of valuation

principles was also identified while failure to comply with provisions of the act in

carrying out revaluation of properties is influenced by political reasons as powers to

approve or otherwise is vested in the state governments. Property owners were found

objecting rate for poor or absence of service provision though hardly considered

relaying on past decisions on similar objections however unfair was the decision.

The study identified a gap between constituent provisions and policy objective

manifesting from the implementation. In order to address this gap, there the need to

revisit constituent sections of the act as sections 127, 128, 129, 130, 137, 142, 143,

and 144. While a unified implementation system could be achieved through an

integrated model of operation designed from research findings.

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Abstrak tesis yang dikemukakan kepada Senat Universiti Putra Malaysia sebagai

memenuhi keperluan untuk ijazah Doktor Falsafah

APLIKASI AKTA 171 PADA TAHUN 1976 MENGENAI PENILAIAN

HARTANAH UNTUK SISTEM PENGKADARAN DI SEMENANJUNG

MALAYSIA

Oleh

HABIBU SANI MUHAMMAD

Ogos 2014

Pengerusi: Mohd Bakri Ibn Ishak, PhD

Fakulti: Pengajian Alam Sekitar

Penilaian harta adalah satu levi cukai ke atas hartanah dikenakan oleh pihak berkuasa

Penilaian (Pihak berkuasa tempatan) bagi meningkatkan pendapatan untuk

menyediakan perkhidmatan awam tertentu dan infrastruktur kutipan dan pelupusan

sampah, perparitan dan pembersihan jalan, taman kejiranan, landskap dan kejiranan

pengasapan. Akta 171 tahun 1976 memberi kuasa kepada semua pihak berkuasa

tempatan di Malaysia untuk mengenakan harga hartanah berdasarkan nilai

ditaksirkan hartanah (tahunan atau pendekatan nilai baik) melalui seksyen masing-

masing 127, 129 dan 130. Permohonan serentak bagi pendekatan yang tidak sama

rata seolah-olah mencetuskan pertanyaan mengenai kemungkinan mencapai

keseragaman seperti yang dikehendaki oleh Akta. Kajian ini mengkonsepsikan untuk

mendedahkan fakta-fakta yang muncul dari pelaksanaan Akta 171 tahun 1976

kepada penilaian harta bagi tujuan Penilaian di Semenanjung Malaysia dengan

rujukan khusus untuk mencapai keseragaman. Ia berpandukan objektif penyelidikan

umum: Menganalisis kandungan tertentu Akta yang memberi kesan kepada Penilaian

harta dan aplikasi standard penilaian antarabangsa / prinsip dalam penilaian hartanah

untuk tujuan penilaian. Manakala objektif khusus termasuk: 1) Membandingkan caj

peratusan klasifikasi hartanah / kadar antara pihak berkuasa tempatan 2)

Membandingkan kadar liabiliti antara pihak berkuasa tempatan pada tahunan dan

lebih baik pendekatan nilai 3) Mengenalpasti sebab-sebab yang sama maju dalam

sesi pendengaran bantahan oleh pembayar cukai dan juga proses-proses yang terlibat

dalam pengendalian bantahan oleh pihak berkuasa tempatan. Kajian ini dijalankan ke

atas reka bentuk kualitatif kajian kes dengan temubual sebagai teknik utama

manakala analisis dokumen, nota dan pemerhatian digunakan untuk triangulasi.

Lapan pihak berkuasa tempatan berstatus Majlis Perbandaran telah dipilih manakala

responden / peserta pula dipilih dari kalangan pegawai penilaian setiap pihak

berkuasa tempatan berdasarkan kajian perintis yang dijalankan dengan keperluan

menjawab soalan-soalan yang telah disusun semula khusus untuk ketua pegawai

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penilaian yang berpengalaman luas dengan syarat kuasa untuk melepaskan dokumen

yang diperlukan untuk penyegitigaan.

Hasil kajian menunjukkan bahawa, Akta 171 tahun 1976 keseluruhannya digunakan

pada isu-isu berkaitan penilaian harta oleh pihak berkuasa tempatan dengan amalan

yang berbeza. Ianya berlaku akibat peruntukan yang bercanggah dalam Akta.

Menyalahgunakan prinsip penilaian juga dikenalpasti manakala kegagalan untuk

mematuhi peruntukan akta dalam menjalankan penilaian semula hartanah

dipengaruhi oleh sebab-sebab politik sebagai kuasa untuk meluluskan atau

sebaliknya adalah terletak pada hak kerajaan negeri. Pemilik harta didapati

membantah setiap kelemahan atau ketiadaan peruntukan dalam perkhidmatan ini

kerana ianya tidak dianggap menyampaikan keputusan bantahan yang lepas dan

dilihat sebagai keputusan tidak adil. Kajian ini mengenal pasti jurang antara

peruntukan konstituen dan objektif dasar manifesting daripada pelaksanaan. Dalam

usaha untuk menangani jurang ini, terdapat keperluan untuk melihat semula

bahagian-bahagian konstituen perbuatan itu sebagai bahagian 127, 128, 129, 130,

137, 142, 143, dan 144. Walaubagaimanpun sistem pelaksanaan bersatu boleh

dicapai melalui model bersepadu operasi direka dari hasil penyelidikan.

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ACKNOWLEDGEMENTS

My foremost appreciation goes to ALLAH who granted me the will and health to

undergo the rigorous process of successfully completing the programme. There is no

doubt that the success would not have been possible without the untiring and firm

supervision of my supervisory committee. I therefore sincerely thank my supervisor

Assoc. Prof. Dr. Mohd Bakri Ibn Ishak for his continuous support and input from the

conception stage of this research when he granted me the opportunity to be his

Doctoral Research student. You made your self readily available for me with short

notices, this has made the work lot easier and faster thus worthy of mention to all. I

also sincerely thank my supervisory committee members; Dr. Normala Halimoon

and Prof. Dr. Abdul-hadi Bin Nawawi for their invaluable input and modifications.

My profound appreciations goes to Mr Burhannuddeen Maamor and Haj Ahmad

Kamal of Ipoh Local Authority, Mr Roslan bin Musa of Shah Alam local Authority,

Mr Azmi bin Haj Miswan of Johor Bahru local Authority, Miss Azreen Hanim bte

Zakaria and Mr Mohan of Melaka local Authority, Haj Idrisu and Puan Alice of

Penang local Authority, Mr Mohammad Leffi and Mr Razihar Ramli of Alor Star

local Authority, Mr Kamarulzzaman bin Mat Saleh of DBKL and Mr Muthu Khumar

of Petaling jaya local Authority for their expertise contribution, audience and

documentary evidences used in this research. They have been of great support to me

from inception to conclusion of the research.

I thank my friends and family in Nigeria and Malaysia for assisting me in different

ways during this study.

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This thesis was submitted to the Senate of Universiti Putra Malaysia and has been

accepted as fulfilment of the requirement for the degree of Doctor of Philosophy.

The members of the Supervisory Committee were as follows:

Mohd Bakri Ibn Ishak, PhD

Associate Professor

Faculty of Environmental Studies

Universiti Putra Malaysia

(Chairman)

Normala Halimoon, PhD

Senior Lecturer

Faculty of Environmental Studies

Universiti Putra Malaysia

(Member)

Abdul-hadi Nawawi, PhD

Professor

Fakulti Senibina

Perancangan & Ukur

Universiti Teknologi Mara Malaysia

_____________________________

BUJANG BIN KIM HUAT, PhD

Professor and Dean

School of Graduate Studies

Universiti Putra Malaysia

Date:

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DECLARATION

Declaration by Graduate Student

I hereby confirm that:

This thesis is my original work;

Except for quotations and citations which have been duly referenced.

The thesis has not been submitted previously or concurrently for any other

degree at any other institution;

Intellectual property for this thesis and copyright of thesis are fully owned by

Universiti Putra Malaysia, as according to the Universiti Putra Malaysia

(Research) Rules 2012;

Written permission must be owned from supervisor and deputy vice

chancellor (Research and Innovation) before thesis is published (in the form

of written, printed or in electronic form) including books, journals, modules,

proceedings, popular writings, seminar papers, manuscripts, posters, reports,

lecture notes, learning modules or any other material as stated in the

Universiti Putra Malaysia (Research) Rules 2012;

There is no plagiarism or data falsification/fabrication in the thesis and

scholarly integrity was upheld as according to Rule 59 in Rules 2003

(Revision 2012-2013). The thesis has undergone plagiarism detection

software.

Signature: ….......................... Date …………………

Name and Matric No. : Habibu Sani Muhammad, Gs31704

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TABLE OF CONTENTS

Page

ABSTRACT i

ABSTRAK iii

ACKNOWLEDGEMENT v

APPROVAL vi

DECLARATION viii

LIST OF TABLES xiv

LIST OF FIGURES xv

LIST OF ABBREVIATIONS

xvi

CHAPTER

1 INTRODUCTION 1

1.1 Introduction 1

1.2 Act 171 of 1976 3

1.3 Property Rating System in Malaysia 4

1.3.1 Federal Government 5

1.3.2 National Council for Local Government 5

1.3.3 State Government 5

1.3.4 Local Authority 6

1.3.5 The Rate Payer 6

1.4 Statement of the Problem 7

1.5 General Objective 9

1.6 Objectives of the Research 9

1.7 Research Questions 9

1.8 Scope of Study 9

1.9 Significance of Study 9

1.10 Limitations of the Study 10

1.11 Definition of terms 10

1.11.1 Act 171 of 1976 10

1.11.2 Value 10

1.11.3 Valuation/Property Assessment 10

1.11.4 Rating 11

1.11.5 Holding 11

1.11.6 Hereditament 11

1.11.7 Rate 11

1.11.8 Rate liability 11

1.12 Organisation of the thesis 11

2 LITERATURE REVIEW

2.1 Introduction 12

2.2 Characteristics of a Good Tax System 12

2.3 Principles of Taxation 13

2.3.1Principles of fairness (benefits enjoyed from the

authority)

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2.3.2 Vertical Equity 14

2.3.3 Horizontal Equity 15

2.3.4 Principle of fairness based on ability to pay 15

2.3.5 Principles of Neutrality 16

2.3.6 Principles of Accountability 16

2.3.7 Principles of Economy 17

2.4 The Need for Taxation on Real Property 18

2.5 Real Property Tax Practices in some selected countries 20

2.6 Bases of Property Taxation 23

2.7 Tax Rate 25

2.8 Procedure in Property Rating Administration 26

2.8.1 Area identification/delineation 26

2.8.2 Property identification and enumeration 26

2.8.3 Physical property inspection/assessment 28

2.8.4 Actual Property Valuation 28

2.8.5 Publication of Rate liabilities and call for Objections 30

2.8.6 Distribution of demand note 30

2.8.7 Determination of Objections 31

2.8.8 Rate Collection 31

2.8.9 Enforcement on Defaulters 32

2.8.10 Updating Valuation list 32

2.9 Exemption from Property Rates Payment in some selected

Countries

33

2.10 Criteria for Evaluating Property Rating System 36

2.11 Operational Requirement of a Rating System 39

2.11.1 Strategic Planning 39

2.11.2 Budget and Determination of Resources

Requirement

39

2.11.3 Human Resources and work Management 40

2.11.4 Quality Assurance 40

2.12 Theories of Rating 41

2.12.1 Ability to pay theory 41

2.12.2 Benefit Theory 41

2.13 Principles of Rating Assessment 42

2.13.1 Rebus Sic Stantibus 42

2.13.2 Rental Consideration/Evidence 42

2.13.3 Vacant and Ready to Let 43

2.13.4 Comparative Assessment 43

2.13.5 Rateable Unit 43

2.14 Method of Property Assessment for Rating Purpose 44

2.14.1 Indirect Rental Valuation Method 44

2.14.2 Direct Rental Valuation Method 45

2.14.3 Profit and Trade Earnings/Account Method 47

2.14.4 Depreciated Replacement Cost/Contractors Method 49

2.15 Summary on Taxation 51

2.16 Theoretical Bases and Focus of the Study 52

2.16.1 Game Theory

53

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3 RESEARCH METHODOLOGY

3.1 Introduction 55

3.2 Research Design 55

3.3 Legal Methodology 62

3.3.1 The Literal Rule 62

3.3.2 The Golden Rule 63

3.3.3 Purposive Approach 63

3.3.4 Integrated Approach 63

3.3.5 Doctrine of Stare Decisis 63

3.4 Qualitative Case Study 64

3.5 Site Selection/Selection of Respondents 65

3.6 Researcher as the Research Instrument 67

3.7 Data Collection 68

3.7.1 Semi Structured Interview 69

3.7.2 Document Analysis 70

3.7.3 Field Notes 71

3.7.4 Direct Observation 71

3.8 Data Analysis 72

3.8.1 Analyzing Observation from the hearing session 74

3.8.2 Analyzing Data from Interview 74

3.8.3 Analyzing Data from Documents 76

3.9 Validity and Reliability 77

3.10 Pilot Study 79

3.11 Ethics 80

3.12Validation of Model 80

4 RESULTS AND DISCUSSIONS

4.1 Introduction 82

4.2 Property Rating Assessment In Peninsular Malaysia 82

4.2.1 Valuation/Revaluation Assessment 87

4.2.2 Method of Property Assessment used by Valuation

Officers

89

4.2.3 Tone of the List 89

4.2.4 Rateable Properties/Exemptions 89

4.3 Application of International Valuation Standards/Principles 94

4.3.1 Depreciated Replacement Cost Method 96

4.3.2 Indirect Rental Comparison Method 96

4.3.3 Profit/Account Method 98

4.4 Revenue Generation Capacity of local authorities from

Property Rates

100

4.5 Objective 1 103

4.5.1 Compare property classification/ rate percentage

charges among local authorities

103

4.5.2 Classification of Holdings for Rating Purposes 103

4.5.3 Comparing Rate Percentage Charges Across the

Local Authorities

105

Objective 2 106

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4.6 Comparison of Rate liabilities Across the Local Authorities

on both annual and improved value approaches

106

Objective 3 108

4.7 Common Reasons for Objection by property owners 108

4.7.1 Objections and Appeals 109

4.7.2 Procedure involved in Objection hearing 109

4.7.3 Efficiency in Objection/Appeal Determination 114

5 SUMMARY, CONCLUSION, DISCUSSION,

IMPLCATIONS AND RECOMENDATIONS

5.1 Introduction 116

5.2 Summary 116

5.3 Significance of Findings, conclusions and Discussion 117

5.4 Implication and Recommendations 120

REFERENCES 123

APPENDICES 137

BIODATA OF STUDENT 149

LIST OF PUBLICATIONS 150